The Addis Ababa Action Agenda contains 14 distinct policy commitments on achieving financial inclusion and brings the financial inclusion and regulatory agendas together, by acknowledging the implication of regulations on access to financial services, while also noting the importance of robust risk-based regulatory frameworks for all financial intermediation. Inclusive finance strives to enhance access to and usage of financial services for both individuals and Micro, small and medium-sized enterprises (MSMEs).
Since 2011, about 1.2 billion adults have obtained a bank account. Yet, there are still about 1.7 billion adults unbanked, 56 per cent of whom are women. In addition, access on its own is not sufficient. The quality of services and utilization rates are also important. In many developing countries, people continue to borrow primarily from friends and family, while only half of savings are held in formal financial institutions.
Global Findex data suggest that countries that adopt financial inclusion strategies reduce exclusion twice as fast as those that do not. National financial inclusion strategies (NFIs) have gained traction in recent years and are becoming an increasingly common policy approach for countries to lay out a plan to address the financial inclusion gap. As of July 2017, there were 63 NFIs in 94 country members of the Alliance for Financial Inclusion (AFI). These commitments are commonly known as “Maya Commitments”, as they refer to common principles laid out in the “Maya Declaration” of the AFI. Poorer countries are more likely to have strategies for financial inclusion, which is not surprising, given that they also tend to have lower degrees of financial inclusion, and are more likely to benefit from nationwide efforts to improve financial access. The map does not display developed countries that have developed a financial inclusion strategy, however, some developed countries, including the UK, have also developed strategies.
The MSME financing gap is estimated to be at more than $5.2 trillion and, despite improvements, these enterprises continue to rank their lack of adequate financing as the biggest obstacle to growing their business.
Firms in LDCs are least likely (less than 25 per cent) to have a bank loan or line of credit. The gap with developed is nearly 20 per cent.
Public credit registry and private credit bureau
Transparent credit information is a prerequisite for sound risk management and financial stability. There are two main types of credit reporting institutions. Public credit registries (PCRs) are public institutions that were generally created with main goal of supervising the banking sector. Private credit bureaus (PCBs), as privately owned commercial enterprises, tend to cater to the information requirements of commercial lenders.
Thus, they typically provide additional value-added services, such as credit scores and collection services. Where public credit registries and private credit bureaus only record loans above a certain threshold, they might exclude small borrowers, many of whom are female entrepreneurs. Finally, where information from nonbank institutions, such as retailers and utilities, is not used to assess borrower creditworthiness, it excludes those who lack traditional banking relationships.
Public credit registry coverage reports the number of individuals and firms listed in a public credit registry with current information on repayment history, unpaid debts, or credit outstanding. The number is expressed as a percentage of the adult population.
National Development Banks
National Development Banks (NDBs) can contribute to making financing more accessible to SMEs by providing credit, loan guarantees, other financial services, and advisory and capacity building programs. In 2015, NDBs held an average share of 30 per cent of total assets, and 24 per cent of total deposits in the Latin American and Caribbean region. They can also assume a counter-cyclical role by scaling up their lending operations to SMEs during financial crises to fill the gap created by reduced credit provision from private banks. This aspect was highlighted during the 2009 global financial crisis when several NDBs stepped up to help many private firms refinance or roll over their liabilities and even provide additional lines of credit. NDBs are particularly suited for local SME-financing because they have often strong knowledge of and long-landing relationships with the local private sector and a good understanding of local barriers to investment. NDBs can also assist SMEs by holding capacity building workshops regardless of their line of credit. NDBs can tap into ongoing regional initiatives focused on promoting NDBs in SME-financing; notably, the Economic Commission for Latin America and the Caribbean (ECLAC) is carrying out the “Financial Inclusion of SMEs and Development Bank Financial Innovation Policies”. See ECLAC Financing for Development in Latin America and the Caribbean: A Strategic Analysis from a Middle-income Country Perspective for more information.
Financial capability is critical for people to be able to make sound decisions regarding their finance and use of financial services. Financial literacy is seen as one element of financial capability and has proven to be important for employability as well the ability of individuals to start and manage their own enterprises.
The Standard & Poor’s Global Financial Literacy Survey, which probes knowledge of four basic financial concepts—risk diversification, inflation, numeracy, and interest compounding—based on interviews with more than 150,000 adults ages 15-34 in over 140 countries, found that on average more than 50 per cent of adults are financially literate in developed countries, while an average of around 37 per cent of adults are financially literate in developing countries. As of 2015 according to the OECD, some 34 countries had financial literacy strategies, with another 25 actively being designed, and another 5 being planned. This represents a doubling of the number of strategies from just five years before. G20 Leaders have highlighted the importance of financial education and literacy and committed themselves to take action to further advance effective policies.
Mobile money providers: A range of innovative tools is being developed and deployed to increase access and promote usage of a range of financial services, many of these are technology-driven such as mobile money where mobile phones are used to access financial services (The Mobile Money Deployment Tracker monitors development in this area). Technology-based solutions are particularly important in areas with low population density where costs structures make it difficult to deliver financial products and services through traditional channels. ITU established a Focus Group on Digital Financial Services (ITU FG-DFS) to facilitate effective consultation and collaboration on key DFS issues.
Cooperatives, savings banks and postal banks can broaden financial inclusion to households and enterprises that usually lack access to commercial and formal banking institutions.
Savings and Credit Cooperatives often referred to as SACCOs are user-owned financial intermediaries. They have helped expand financial services in rural areas in developing countries and now represent a sizeable proportion of the micro-and rural ﬁnance industry. There are a range of policy tools that can support SACCOs, including capacity-building programmes at the national or local levels to increase financial literacy for SACCO members.
Postal Banks: While the share of account holders at postal banks is relatively modest in all regions, these banks offer great advantages in extending financial inclusion, because it can build on existing infrastructure of the country’s postal networks to penetrate into rural areas. Post office account holders tend to be significantly poorer, older, less educated, and less likely to be employed than those who have an account at a financial institution or both a financial institution and the post office. This suggests that post offices may play an important role in providing financial services to segments of the population that are particularly likely to be financially excluded. It is also suggested that posts could play an important role in bridging the gap in account penetration between rural and urban areas. See World Bank's article on Financial Inclusion and the Role of the Post Office for more information.
Savings banks have the primary role of maintaining basic savings accounts for households and enterprises, usually serving the local community with a public mandate or regional cause. Their business model, based on savings mobilization, is typically characterized by social as well as business objectives, with a goal of profitability but not profit maximization.
Blended finance instruments may capitalize on partnerships among diverse actors, including international organizations, development cooperation agencies and private enterprise. An example of such a partnership is the Women Entrepreneurs Opportunity Facility, launched in March 2014 by the International Finance Corporation and Goldman Sachs’ 10,000 Women, dedicated to expanding access to capital for women-owned SMEs. Through the facility, the International Finance Corporation aims to invest up to $600 million in financial institutions that are committed to expanding their financial services to small and medium enterprises owned by women in emerging markets. The funding for the facility includes $50 million of blended finance from Goldman Sachs’ 10,000 Women to create performance incentives for financial institutions to boost their lending to this segment, and to support capacity building among financial institutions and women borrowers.